Charities Fear New Pay Limits Will Hurt Executive Donations
Feb. 17, 2009, Wall Street Journal — Nonprofits already face the prospect of fewer donations amid turmoil at Wall Street firms and other companies. Now, they could face another donation deterrent: Washington's plans to curb executive pay.
Americans gave more than $300 billion to charity in 2007, according to the most recent figures. Some of the largest gifts from that pot have come from wealthy Wall Street bosses.
Now nonprofit leaders, especially in and around New York's financial hub, are worried these big donors could feel squeezed further amid government edicts to limit pay packages.
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The economic stimulus package President Barack Obama is expected to sign Tuesday includes a measure barring any firms that have received federal bailout money from paying top earners bonuses exceeding more than one-third of their total yearly compensation. The measure also empowers the Treasury Secretary to "claw back" previous bonuses in certain instances if they're deemed excessive. It remains unclear exactly how the rules will be implemented, raising questions about corporate America's future compensation practices.
"As long as there is uncertainty about what's going to happen with executive compensation, that could really hold a lot of people back from giving, and not just on Wall Street," says Melissa Berman, president and chief executive of Rockefeller Philanthropy Advisors.
Of course, Wall Street executives, and employees lower on the ladder, still have more resources to give than many Americans. But they, like everyone else, are feeling less wealthy these days amid the financial crisis. In some cases, they're telling charities they can't be as generous as they've been in the past. The new compensation regulations could give them another justification for scaling back giving.
Jilly Stephens, executive director of City Harvest, a New York charity that combats hunger, says giving isn't driven solely by how much people earn. But, she says, it remains her "job to be worried" about finding alternative funding sources as dependable Wall Street bonuses dry up.
Many New York-area charities depend on both big gifts from executives and smaller donations from mid-level bankers to fuel their operations. The deepening recession has already trimmed revenue for these charities just as demand for services skyrockets.
"I hope we don't vilify everybody in the financial services sector," says Lisanne Finston, the executive director of Elijah's Promise, a New Jersey soup kitchen. Ms. Finston depends in part on Wall Street bankers' bonuses to fund her operations. She says her donations for food programs, typically $400,000, fell 19% last year, while the number of meals served jumped by about 15,000, or 15%.
Wall Street's biggest players have been among the largest benefactors for food pantries, antipoverty initiatives, museums and universities. Many declined to comment on their gifts or whether they may reduce them. Recipient charities, too, often are reluctant to discuss donors for fear of upsetting benefactors.
But many big Wall Street donors funnel money through private foundations, which must document annual grants through tax forms that offer a window into their charitable habits.
Morgan Stanley Chief Executive John Mack and his wife gave more than $8.6 million to charity in 2007 through their family foundation, according to the latest tax documents. Their gifts have gone to hospitals, historic preservation and charities aiding inner-city poor.
Morgan Stanley received $10 billion in federal assistance last year after its stock-price tumbled amid broader market fears. The year before, Mr. Mack received an $800,000 salary and realized about $8 million in exercised options. He hasn't taken a bonus in the past two years. He declined to comment through a spokeswoman.
Top executives at other banks that have received aid have also given at least several hundred thousand dollars to charity annually in recent years, including Goldman Sachs Group Inc. Chief Executive Lloyd Blankfein and J.P. Morgan Chase & Co. Chief Executive James Dimon. Spokesmen for Messrs. Blankfein and Dimon didn't return messages seeking comment.
Exactly how donors will react to new rules affecting their pay remains to be seen. But the emerging political climate could make many of them hesitant to dole out cash when their compensation remains uncertain. However the rules are implemented, boardrooms — even at companies that haven't received bailout money — appear poised to revise pay policies to reflect new political realities.
The evolving compensation landscape isn't limited to Wall Street. General Motors Corp., the cash-strapped Detroit auto giant, will likely need more government aid to avoid bankruptcy after already receiving billions of dollars in loans.
GM Chief Executive Rick Wagoner lowered his annual salary to $1 and relinquished any bonus for 2008 and 2009 as a condition of that aid. In response to lawmakers' fury over big executive paydays, GM also cut total cash compensation for its next four senior executives by 50%.
Detroit's cultural institutions, homeless shelters and other nonprofits are already cutting back as the city's auto makers retrench and scale back giving. Pay curbs on top of the Motor City's economic pain "will certainly have an impact," on giving, says Peter Remington, president of The Remington Group, a nonprofit consulting firm in Beverly Hills, Mich.
A GM spokesman declined to comment on executives' giving plans, saying "individual charitable giving is a private matter."
